Cairngorms Nation­al Park Authority

INTERN­AL AUDIT REPORT

Pro­ject Fin­an­cing Decem­ber 2019

LEVEL OF ASSURANCE
Design	Oper­a­tion­al Effectiveness
Mod­er­ate	Mod­er­ate

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

CON­TENTS

Exec­ut­ive Sum­mary 3 Detailed Find­ings and Recom­mend­a­tions 8

Appen­dices: I Staff Inter­viewed 13 II Defin­i­tions 14 III Terms of Ref­er­ence 15

REPORT STATUS Aud­it­ors: Chloe Rid­ley Dates work per­formed: 25 Novem­ber — 12 Decem­ber 2019 Draft report issued: 16 Decem­ber 2019 Final report issued: 23 Janu­ary 2020

DIS­TRI­BU­TION LIST Dav­id Camer­on Dir­ect­or of Cor­por­ate Ser­vices Daniel Ral­ph Fin­ance Man­ager Mem­bers of the Audit & Risk Committee

Restric­tions of use The mat­ters raised in this report are only those which came to our atten­tion dur­ing the course of our audit and are not neces­sar­ily a com­pre­hens­ive state­ment of all the weak­nesses that exist or all improve­ments that might be made. The report has been pre­pared solely for the man­age­ment of the organ­iz­a­tion and should not be quoted in whole or in part without our pri­or writ­ten con­sent. BDO LLP neither owes nor accepts any duty to any third party wheth­er in con­tract or in tort and shall not be liable, in respect of any loss, dam­age or expense which is caused by their reli­ance on this report.

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

EXEC­UT­IVE SUMMARY

LEVEL OF ASSUR­ANCE (SEE APPENDIX II FOR DEFINITIONS)

Design	Gen­er­ally a sound sys­tem of intern­al con­trol designed to achieve sys­tem object­ives with some exceptions.
Effect­ive­ness	Evid­ence of non com­pli­ance with some con­trols, that may put some of the sys­tem object­ives at risk.

SUM­MARY OF RECOM­MEND­A­TIONS (SEE APPENDIX II)

High

Medi­um 2

Low 3 Total num­ber of recom­mend­a­tions: 5

OVER­VIEW Back­ground In accord­ance with the 2019 – 20 Intern­al Audit Plan, it was agreed that Intern­al Audit would review the design and oper­at­ing effect­ive­ness of the con­trols in place at Cairngorms Nation­al Park Author­ity (CNPA) sur­round­ing pro­ject fin­an­cing arrangements.

CNPA are cur­rently engaged in four pro­jects: LEAD­ER, Tomin­toul & Glen­liv­et Land­scape Part­ner­ship (T&G), Caper­cail­lie and the Great Place Badenoch Pro­ject (GPB).

The LEAD­ER pro­gramme is a European Uni­on ini­ti­at­ive which aims to increase sup­port to loc­al rur­al com­munity and busi­ness net­works to build know­ledge and skills, and encour­age innov­a­tion and co-oper­a­tion in order to tackle loc­al devel­op­ment object­ives. LEAD­ER is part of the Scot­tish Rur­al Devel­op­ment Pro­gramme 2014 – 2020, for which CNPA is an Account­able Body. The pro­ject is invest­ing £3.8million into com­munit­ies of the Cairngorms Nation­al Park. All pro­ject claims have to be paid out by Decem­ber 2020.

The roles and respons­ib­il­it­ies of CNPA, Cairngorms Loc­al Action Trust (CLAT) and Cairngorms Loc­al Action Group (CLAG) in rela­tion to LEAD­ER have been doc­u­mented with­in a Memor­andum of Agree­ment between the bod­ies, which was agreed in Decem­ber 2014. The CLAT is respons­ible for mon­it­or­ing the income and expendit­ure pos­i­tion of LEAD­ER. CNPA is respons­ible for the receipt and effect­ive stew­ard­ship of all LEAD­ER resources made avail­able by the Scot­tish Gov­ern­ment, and is also respons­ible for sup­ply­ing cash flow fin­an­cing and provid­ing sup­port on fin­an­cial and man­age­ment account­ing, cred­it­or pay­ments and grant disbursements.

The T&G pro­ject aims to use the rich her­it­age of Tomin­toul & Glen­liv­et area to pro­mote rur­al regen­er­a­tion. Work includes pro­jects to gath­er oral his­tory, con­serve import­ant build­ings, restore wood­land and improve paths in the area. It is a £3.5million pro­ject, and £2.3million is fun­ded by Nation­al Lot­tery Her­it­age Fund (NLHF). The pro­ject will end in Septem­ber 2020.

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

EXEC­UT­IVE SUMMARY

OVER­VIEW Back­ground (con­tin­ued) The roles and respons­ib­il­it­ies of the T&G Pro­ject Board, Pro­ject Team and the Applic­ant (CNPA) have been doc­u­mented with­in a Part­ner­ship Agree­ment, which was agreed in July 2015. The Agree­ment describes that the Applic­ant (CNPA) should over­see the fin­an­cial man­age­ment, mon­it­or­ing and report­ing of the Pro­ject, guided by the Pro­ject Man­ager, and act as grant recip­i­ent on behalf of the Partners.

The Caper­cail­lie pro­ject is a part­ner­ship focus­ing on pop­u­la­tion mon­it­or­ing, hab­it­at cre­ation, sus­tain­able recre­ation plan­ning and work enabling com­munit­ies to make decisions and take informed action for Caper­cail­lie. It is a £555k pro­ject that it partly fun­ded by NLHF (62%) with the remain­ing fun­ded by the part­ners. The devel­op­ment stage of the pro­ject is run­ning to March 2020. A decision will be made in July 2020 by NLHF as to wheth­er a deliv­ery stage grant will be awarded.

The GPB is a part­ner­ship with key loc­al organ­isa­tions involved in her­it­age across Badenoch. It is a £438k pro­ject and is partly fun­ded by NLHF (80%). The pro­ject has been exten­ded, by agree­ment with NLHF, to 31 March 2021.CNPA has a lead stew­ard­ship role for fin­an­cial man­age­ment, account­ing and grant claims of the pro­jects for Caper­cail­lie and GPB.

Fin­an­cial data for each of the pro­jects is recor­ded sep­ar­ately with­in CNPA’s man­age­ment accounts. Man­age­ment accounts are pre­pared on a monthly basis by CNPA’s Fin­ance Man­ager and staff.

LEAD­ER claims for reim­burse­ment are sub­mit­ted to the Scot­tish Gov­ern­ment usu­ally with­in 10 days of a pay­ment for a pro­ject claim, and monthly for admin­is­tra­tion cost claims via the Loc­al Actions in Rur­al Com­munit­ies Sys­tem (LARCs) portal. A Scot­tish Gov­ern­ment Admin­is­tra­tion Claims Guid­ance doc­u­ment has been provided to all CLAG staff, which provides guid­ance on evid­en­cing expendit­ure, breaches and pen­al­ties, sep­ar­a­tion of duties, requests and returns, and key LEAD­ER Fin­ance team con­tacts. The doc­u­ment lists the eli­gible LEAD­ER expenses, includ­ing dir­ect staff costs, train­ing, events and travel and sub­sist­ence. All expendit­ure must be sup­por­ted by a fully trans­par­ent audit trail.

CNPA sub­mits pro­ject returns to NLHF for T&G, Caper­cail­lie and GPB on a quarterly basis for reim­burse­ment of funds in arrears. Where expendit­ure is great­er than £500 sup­port­ing doc­u­ment­a­tion must be provided. NLHF has guid­ance on eli­gible expendit­ure in their applic­a­tion guidance.

CNPA’s Fin­ance & Deliv­ery Com­mit­tee receive fin­an­cial mon­it­or­ing reports at least 3 times in a fin­an­cial year, which includes an update on each of the projects.

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

EXEC­UT­IVE SUMMARY

OVER­VIEW Back­ground (con­tin­ued) The Cairngorms Loc­al Action Group Trust (Cairngorms Trust) is the over­see­ing Board for LEAD­ER. Update reports are presen­ted on a quarterly basis, which includes details on com­mit­ted expendit­ure and fund­ing remain­ing. Fin­an­cial reports are presen­ted on a monthly basis to the T&G’s Part­ner­ship Board. Capercaillie’s Pro­ject Board and GBP’s Board both meet on a quarterly basis, and pro­gress reports are pre­pared by the Pro­ject Man­ager which include an update on spend to date against budget.

Scope and Approach The scope of our review was to assess whether:

• The roles and respons­ib­il­it­ies, par­tic­u­larly fin­an­cial respons­ib­il­it­ies of Cairngorms Nation­al Park Author­ity and the Part­ner­ship Boards in rela­tion to pro­ject activ­it­ies are clearly defined;
• There is clear fin­an­cial sep­ar­a­tion between Cairngorms Nation­al Park Author­ity activ­it­ies and pro­ject activities;
• There is a sound under­stand­ing of eli­gible pro­ject expendit­ure and an effect­ive pro­cess in place for claim­ing eli­gible expenditure;
• There are effect­ive pro­cesses in place to ensure suf­fi­cient man­age­ment inform­a­tion is provided to Part­ner­ship Boards to dis­charge their role; and
• There are robust report­ing arrange­ments in place to ensure effect­ive over­sight of the pro­jects, includ­ing for­ward fore­cast­ing and cash flow expectations.

Our approach was to con­duct inter­views to estab­lish the con­trols in oper­a­tion for each of our areas of audit work. We then sought doc­u­ment­ary evid­ence that these con­trols are designed as described. We sought to gain evid­ence of the sat­is­fact­ory oper­a­tion of the con­trols to veri­fy the effect­ive­ness of the con­trol through use of a range of tools and techniques.

A de-brief meet­ing was under­taken before com­plet­ing the review to dis­cuss find­ings and ini­tial recommendations

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

EXEC­UT­IVE SUMMARY

OVER­VIEW Good Prac­tice Dur­ing our review, we iden­ti­fied a num­ber of areas of good prac­tice as follows:

• Fin­an­cial roles and respons­ib­il­it­ies for the pro­jects are clearly defined;
• Income & expendit­ure for CNPA and each of the four pro­jects are clearly sep­ar­ated in CNPA’s fin­an­cial report­ing arrangements;
• There is reg­u­lar fin­an­cial report­ing on the pro­jects to the pro­ject boards and CNPA’s Fin­ance and Deliv­ery Com­mit­tee; and
• CNPA man­age­ment can view live fin­an­cial reports as and when they require from the fin­an­cial system.

Key Find­ings Not­with­stand­ing the areas of good prac­tice noted above, we also iden­ti­fied a num­ber of oppor­tun­it­ies for improve­ment in the pro­ject fin­an­cing arrange­ments as follows:

• Man­age­ment Review: The last 3 man­age­ment team meet­ing minutes were reviewed and there was no evid­ence to sup­port that man­age­ment looked at the fin­an­cial pos­i­tion of the organ­isa­tion. Man­age­ment rarely review the live fin­an­cial reports on the fin­ance system;
• NLHF Claim: For T&G we selec­ted a sample of 5 trans­ac­tions from the return, and 2 had no sup­port­ing doc­u­ment­a­tion. For the Great Place we selec­ted a sample of 3 trans­ac­tions, and 2 had no sup­port­ing documentation;
• T&G Cash Flow Fore­cast­ing: Cash flow fore­cast­ing reports are not com­pleted for T&G on a reg­u­lar basis. A fore­cast was com­pleted dur­ing the audit, how­ever pri­or to this a fore­cast has not been pre­pared for 18 months;
• Fin­an­cial Fore­cast­ing: At the time of the audit, CNPA’s fore­cast out­turn for the year was not com­pleted. There­fore man­age­ment are unable to see the fore­cast year-end pos­i­tion and com­pare this to budget; and
• Cash Flow: NLHF will not release funds until they have received a pro­gress report on the pro­ject. T&G’s pro­gress report was sub­mit­ted on the 25^th of Novem­ber for the quarter to 30^th Septem­ber 2019, and funds were received on the 12^th of Decem­ber. There­fore there is over a 2 month delay in receiv­ing funds. The return was for £416k.

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

EXEC­UT­IVE SUMMARY

OVER­VIEW Con­clu­sion We are pleased to offer mod­er­ate assur­ance over the design and oper­a­tion­al effect­ive­ness of the pro­ject fin­an­cing arrange­ments at Cairngorms Nation­al Park Authority.

RISKS REVIEWED GIV­ING RISE TO NO FIND­INGS OF A HIGH OR MEDI­UM SIGNIFICANCE

• The roles and respons­ib­il­it­ies, par­tic­u­larly fin­an­cial respons­ib­il­it­ies, of Cairngorms Nation­al Park Author­ity and the Part­ner­ship Boards in rela­tion to pro­ject activ­it­ies may not have been clearly defined.
• There may not be clear fin­an­cial sep­ar­a­tion between Cairngorms Nation­al Park Author­ity activ­it­ies and pro­ject activities.
• There may not be effect­ive pro­cesses in place to ensure suf­fi­cient man­age­ment inform­a­tion is provided to Part­ner­ship Boards to dis­charge their role.

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

DETAILED RECOM­MEND­A­TIONS

RISK: There may not be robust report­ing arrange­ments in place to ensure effect­ive over­sight of the pro­jects, includ­ing for­ward fore­cast­ing and cash flow expectations

Ref.	Find­ing	Sig.	Recom­mend­a­tion
1	Man­age­ment Review It is good prac­tice for man­age­ment to reg­u­larly review and chal­lenge their organ­iz­a­tions fin­an­cial pos­i­tion. The last 3 CNPA man­age­ment team meet­ing minutes were reviewed and there was no evid­ence to sup­port that man­age­ment looked at the fin­an­cial pos­i­tion of the organ­iz­a­tion. CNPA’s fin­an­cial sys­tem allows man­age­ment to run live fin­an­cial reports as and when they require. Man­age­ment rarely look at this inform­a­tion. There is a risk there is inad­equate over­sight by CNPA’s man­age­ment team of expenditure.		We recom­mend that review of man­age­ment accounts is a stand­ing agenda item for CNPA Man­age­ment Team meet­ings on a monthly basis. We recom­mend Fin­ance con­sult with the Man­age­ment team to determ­ine what fin­an­cial inform­a­tion they would find use­ful and update report­ing if necessary.

MAN­AGE­MENT RESPONSE Recom­mend­a­tion accep­ted. It is worth not­ing that the Dir­ect­or of Cor­por­ate Ser­vices is in close liais­on with the Fin­ance Manger on a weekly basis and mon­it­or­ing budget pos­i­tion and any issues through­out each month. Excep­tions would always be raised at Man­age­ment Team if required. It is also worth not­ing that the audit took place over Octo­ber / Novem­ber, while the peak cycle for man­age­ment activ­ity on budget in typ­ic­ally from Janu­ary into March in the absence of sig­ni­fic­ant budget issues. That said, it is accep­ted that the reg­u­lar over­view of budget mon­it­or­ing has slipped off the Man­age­ment Team agenda and should be added as a stand­ing items to ensure this key area of mon­it­or­ing work is con­sidered reg­u­larly and any chal­lenge cap­able of being made.

RESPONS­IB­IL­ITY AND IMPLE­MENT­A­TION DATE Respons­ible Officer: Dir­ect­or of Cor­por­ate Ser­vices Imple­ment­a­tion Date: Janu­ary 2020

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

DETAILED RECOM­MEND­A­TIONS

RISK: There may not be a sound under­stand­ing of eli­gible pro­ject expendit­ure or an effect­ive pro­cess in place for claim­ing eli­gible expenditure.

Ref.	Find­ing	Sig.	Recom­mend­a­tion
2	NLHF Claim CNPA provide Her­it­age Lot­tery Fund with evid­ence of expendit­ure where the value is great­er than £500. For the T&G pro­ject we selec­ted a sample of 5 trans­ac­tions from the return, and 2 had no sup­port­ing doc­u­ment­a­tion. For the Great Place pro­ject we selec­ted a sample of 3 trans­ac­tions, and 2 had no sup­port­ing doc­u­ment­a­tion; NLHF has not yet come back to CNPA to ques­tion the return not agree­ing to sup­port­ing doc­u­ment­a­tion. There is a risk there is an inef­fect­ive pro­cess in place for claim­ing expenditure.		We recom­mend CNPA reviews its pro­ced­ures for sub­mit­ting its sup­port­ing doc­u­ment­a­tion to NLHF to ensure that all required doc­u­ment­a­tion is provided. CNPA should con­sider adding an addi­tion­al review pri­or to the sub­mis­sion, which should be evidenced.

MAN­AGE­MENT RESPONSE There are lim­it­a­tions in terms of num­ber and size of doc­u­ments which can be loaded when mak­ing a claim on the NLHF portal. It appears that in the samples the com­pres­sion of PDFs led to some doc­u­ments being omit­ted. For future claims the com­pressed com­pos­ite PDFs will be checked for com­plete­ness. (Please note that in both cases the claims were paid in full.)

RESPONS­IB­IL­ITY AND IMPLE­MENT­A­TION DATE Respons­ible Officer: Fin­ance man­ager Imple­ment­a­tion Date: Imme­di­ate on com­ple­tion of Decem­ber claims

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

DETAILED RECOM­MEND­A­TIONS

RISK: There may not be robust report­ing arrange­ments in place to ensure effect­ive over­sight of the pro­jects, includ­ing for­ward fore­cast­ing and cash flow expectations

Ref.	Find­ing	Sig.	Recom­mend­a­tion
3	T&G Cash Flow Fore­cast­ing To help ensure the pro­ject oper­ates with­in budget and there are no cash flow issues it is good prac­tice to com­plete cash flow fore­cast­ing reports. Cash flow fore­cast­ing reports are not com­pleted for T&G on a reg­u­lar basis. A fore­cast was com­pleted dur­ing the audit, how­ever pri­or to this a fore­cast has not been pre­pared for 18 months. There is a risk T&G may not oper­ate with­in its budget and may have cash flow issues.		We recom­mend cash flow fore­cast­ing reports are com­pleted for T&G up until the project’s completion.

MAN­AGE­MENT RESPONSE An out­line cash flow to the end of the pro­ject has now been received. The cash pos­i­tion of the pro­ject will be mon­itored on a monthly basis until the pro­ject clos­ure in September.

RESPONS­IB­IL­ITY AND IMPLE­MENT­A­TION DATE Respons­ible Officer: Pro­ject man­ager & fin­ance man­ager Imple­ment­a­tion Date: 31 Janu­ary 2020

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

DETAILED RECOM­MEND­A­TIONS

RISK: There may not be robust report­ing arrange­ments in place to ensure effect­ive over­sight of the pro­jects, includ­ing for­ward fore­cast­ing and cash flow expectations

Ref.	Find­ing	Sig.	Recom­mend­a­tion
4	Fin­an­cial Fore­cast­ing To ensure sound fin­an­cial man­age­ment it is good prac­tice to reg­u­larly update the fore­cast year-end pos­i­tion and com­pare to budget. At the time of the audit, CNPA’s fore­cast out­turn for the year was not com­pleted. There­fore man­age­ment are unable to see the fore­cast year- end pos­i­tion and com­pare this to budget in their snap­shot reports. A fore­cast year-end pos­i­tion is provided to the Fin­ance & Deliv­ery Com­mit­tee at their three meet­ings in a year. There is a risk there may not be robust report­ing arrange­ments in place to ensure effect­ive over­sight of the pro­jects, includ­ing for­ward forecasting.		We recom­mend fore­cast­ing of CNPA’s year-end pos­i­tion is com­pleted on a reg­u­lar basis and is avail­able for man­age­ment to review.

MAN­AGE­MENT RESPONSE The Author­ity aims to break even, or come close to break even on Core expendit­ure annu­ally. While the ¹⁹⁄₂₀ budget presen­ted to the Board was ​“unbal­anced” sub­sequent addi­tion­al grants in aid from Scot­tish Gov­ern­ment and fin­an­cial man­age­ment indic­ate that the author­ity will again break even. For ²⁰⁄₂₁ the pro­jec­tions will include a look­through to the fore­cast outturn.

RESPONS­IB­IL­ITY AND IMPLE­MENT­A­TION DATE Respons­ible Officer: Fin­ance man­ager Imple­ment­a­tion Date: 31 March 2020

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

DETAILED RECOM­MEND­A­TIONS

RISK: There may not be a sound under­stand­ing of eli­gible pro­ject expendit­ure or an effect­ive pro­cess in place for claim­ing eli­gible expenditure.

Ref.	Find­ing	Sig.	Recom­mend­a­tion
5	Cash Flow CNPA sub­mit claims to NLHF on a quarterly basis. NLHF may take up to 15 work­ing days to release the cash fol­low­ing a return sub­mis­sion. NLHF will not release the funds until they have received a pro­gress report on the pro­ject. T&G’s pro­gress report was sub­mit­ted on the 25th of Novem­ber for the quarter to 30th Septem­ber 2019, and funds were received on the 12th of Decem­ber. There­fore there is over a 2 month delay in receiv­ing funds. The return was for £416k. There is a risk that CNPA is not sub­mit­ting timely pro­gress reports and as a res­ult faces cash flow issues, due to the lag in receiv­ing funds.		We recom­mend Pro­ject Man­agers are reminded of the need to com­plete and sub­mit their pro­gress reports to NLHF in a timely manner.

MAN­AGE­MENT RESPONSE

Accep­ted

RESPONS­IB­IL­ITY AND IMPLE­MENT­A­TION DATE Respons­ible Officer: Pro­ject man­ager Imple­ment­a­tion Date: 31 March 2020

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

APPENDIX I — STAFF INTERVIEWED

NAME	JOB TITLE
Daniel Ral­ph	Fin­ance Manager
Liz Hende­r­son	Com­munity Sup­port Manager
Lynne Ander­son	Cairngorms LEAD­ER Admin & Sup­port Officer

BDO LLP appre­ci­ates the time provided by all the indi­vidu­als involved in this review and would like to thank them for their assist­ance and cooperation.

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

APPENDIX II — DEFINITIONS

LEVEL OF ASSUR­ANCE	DESIGN of intern­al con­trol frame­work	OPER­A­TION­AL EFFECT­IVE­NESS of intern­al controls
	Find­ings from review	Design Opin­ion	Find­ings from review	Effect­ive­ness Opinion
Sub­stan­tial	Appro­pri­ate pro­ced­ures and con­trols in place to mit­ig­ate the key risks.	There is a sound sys­tem of intern­al con­trol designed to achieve sys­tem objectives.	No, or only minor, excep­tions found in test­ing of the pro­ced­ures and controls.	The con­trols that are in place are being con­sist­ently applied.
Mod­er­ate	In the main there are appro­pri­ate pro­ced­ures and con­trols in place to mit­ig­ate the key risks reviewed albeit with some that are not fully effective.	Gen­er­ally a sound sys­tem of intern­al con­trol designed to achieve sys­tem object­ives with some exceptions.	A small num­ber of excep­tions found in test­ing of the pro­ced­ures and controls.	Evid­ence of non com­pli­ance with some con­trols, that may put some of the sys­tem object­ives at risk.
Lim­ited	A num­ber of sig­ni­fic­ant gaps iden­ti­fied in the pro­ced­ures and con­trols in key areas. Where prac­tic­al, efforts should be made to address in-year.	Sys­tem of intern­al con­trols is weakened with sys­tem object­ives at risk of not being achieved.	A num­ber of reoc­cur­ring excep­tions found in test­ing of the pro­ced­ures and con­trols. Where prac­tic­al, efforts should be made to address in-year.	Non-com­pli­ance with key pro­ced­ures and con­trols places the sys­tem object­ives at risk.
No	For all risk areas there are sig­ni­fic­ant gaps in the pro­ced­ures and con­trols. Fail­ure to address in-year affects the qual­ity of the organisation’s over­all intern­al con­trol framework.	Poor sys­tem of intern­al control.	Due to absence of effect­ive con­trols and pro­ced­ures, no reli­ance can be placed on their oper­a­tion. Fail­ure to address in-year affects the qual­ity of the organisation’s over­all intern­al con­trol framework.	Non com­pli­ance and/​or com­pli­ance with inad­equate controls.

Recom­mend­a­tion Significance | | | | : — — — — — | : — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — - | | High | A weak­ness where there is sub­stan­tial risk of loss, fraud, impro­pri­ety, poor value for money, or fail­ure to achieve organ­isa­tion­al object­ives. Such risk could lead to an adverse impact on the busi­ness. Remedi­al action must be taken urgently. | | Medi­um | A weak­ness in con­trol which, although not fun­da­ment­al, relates to short­com­ings which expose indi­vidu­al busi­ness sys­tems to a less imme­di­ate level of threat­en­ing risk or poor value for money. Such a risk could impact on oper­a­tion­al object­ives and should be of con­cern to seni­or man­age­ment and requires prompt spe­cif­ic action. | | Low | Areas that indi­vidu­ally have no sig­ni­fic­ant impact, but where man­age­ment would bene­fit from improved con­trols and/​or have the oppor­tun­ity to achieve great­er effect­ive­ness and/​or efficiency. |

CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex 1 27/03/20

APPENDIX III — TERMS OF REFERENCE

BACK­GROUND In accord­ance with the 2019 – 20 Intern­al Audit Plan, it was agreed that Intern­al Audit would review the design and oper­at­ing effect­ive­ness of the con­trols in place at Cairngorms Nation­al Park Author­ity sur­round­ing pro­ject fin­an­cing arrangements.

PUR­POSE OF REVIEW The pur­pose of this review is to provide man­age­ment and the Audit & Risk Com­mit­tee with assur­ance that Cairngorms Nation­al Park Author­ity has well designed, effect­ive con­trols in place in rela­tion to their pro­ject fin­an­cing admin­is­tra­tion. We will review to assess the effect­ive­ness of the pro­ject account­ing pro­ced­ures that are in place for extern­ally fun­ded pro­jects. We will review Cash Flow con­sid­er­a­tions asso­ci­ated with these activ­it­ies to val­id­ate if they are man­aged effect­ively and pro­ject expenses are being recor­ded, man­aged and repor­ted effectively.

KEY RISKS Based upon the risk assess­ment under­taken dur­ing the devel­op­ment of the intern­al audit oper­a­tion­al plan, through dis­cus­sions with man­age­ment, and our col­lect­ive audit know­ledge and under­stand­ing, the key risks asso­ci­ated with the area under review are:

• The roles and respons­ib­il­it­ies, par­tic­u­larly fin­an­cial respons­ib­il­it­ies, of Cairngorms Nation­al Park Author­ity and the Part­ner­ship Boards in rela­tion to pro­ject activ­it­ies may not have been clearly defined;
• There may not be clear fin­an­cial sep­ar­a­tion between Cairngorms Nation­al Park Author­ity activ­it­ies and pro­ject activities;
• There may not be a sound under­stand­ing of eli­gible pro­ject expendit­ure or an effect­ive pro­cess in place for claim­ing eli­gible expenditure;
• There may not be effect­ive pro­cesses in place to ensure suf­fi­cient man­age­ment inform­a­tion is provided to Part­ner­ship Boards to dis­charge their role; and
• There may not be robust report­ing arrange­ments in place to ensure effect­ive over­sight of the pro­jects, includ­ing for­ward fore­cast­ing and cash flow expectations.

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CAIRNGORMS NATION­AL PARK AUTHOR­ITY Audit & Risk Com­mit­tee Paper 3 Annex I 27/03/20